Entertainment media legend Walt Disney Co. (
) will take the earnings stage after the close of trading on
Tuesday, Aug. 10, and call buyers have taken a keen interest in the
company heading into the event. While the Magical Kingdom has a
history of topping the consensus estimate, could option bulls be
getting ahead of themselves?
For the record, Walt Disney is expected to post a third-quarter
profit of 59 cents per share, a figure that is up roughly 13% from
last year's earnings of 52 cents per share for the same period.
Looking back, the company has bested the consensus estimate in each
of the prior four reporting periods, with an average upside
surprise of roughly 11%.
Potentially keying on DIS' consistent fundamental performance,
options traders have pressured the stock's Schaeffer's put/call
open interest ratio (SOIR) lower from a reading of 0.95, in the
73rd percentile, on July 27, to its current perch at 0.74, in the
34th percentile. Since the SOIR measures puts versus calls among
options with less than three months until expiration, it is likely
that this rise in call open interest is tied to DIS' quarterly
Supporting this theory, data from the International Securities
Exchange (ISE) and Chicago Board Options Exchange (
) reveals that calls bought to open have practically doubled puts
purchased during the prior two weeks. The resulting 10-day ISE/CBOE
call/put volume ratio of 1.90 arrives higher than 79% of all those
taken during the past year. In other words, DIS options traders
have rarely snapped up calls at a faster rate than puts during the
prior 52 weeks.
Checking in with DIS' open interest configuration, we find that
options traders are focusing heavily on the in-the-money August 32
call strike, where more than 9,600 of these bullishly oriented
contracts are currently open. Meanwhile, peak put open interest for
the August series of options lies at the out-of-the-money August 31
strike, totaling 3,485 contracts. This focus on in-the-money call
options and out-of-the-money put options indicates that while DIS
speculators are bullish toward the stock, they have not set their
sights exceedingly high.
Wall Street, meanwhile, is leaning toward the bearish camp when
it comes to DIS. Specifically, the equity has earned two "sells"
and 13 "holds," versus 13 "buys." That said,
reports that the 12-month consensus price target for the stock
rests at $37.86 per share - a modest 8% premium to the stock's
closing price of $34.21 on Tuesday. Given the wealth of "hold"
ratings and the moderate price target, there is plenty of wiggle
room on both sides of the bull/bear coin for the brokerage
Technically speaking, DIS has rallied more than 33% during the
past 52 weeks, but the equity's short-term performance has been
questionable. Specifically, the shares have traded in a tight range
between support at the $31 level and resistance in the $35 region.
Still, the stock has yet to break out of its longer-term uptrend,
with DIS recently finding support at its rising 50-week moving
average. This longer-term trendline has paired up with DIS' 10-week
and 20-week moving averages to help push the stock higher since
As hinted at above, there is still a major technical hurdle that
could spoil the party for DIS. The stock recently dipped back below
long-term resistance at the $35 level after making a run at finally
breaking through this ceiling. Looking back, DIS has closed only
one month above $35 per share since October 2000. With expectations
on the rise heading into the company's quarterly report, it may
take more than the company's typical 11% upside surprise for
investors to push the shares firmly back above this long-term
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